Colombian Peso Advances Most in Two Weeks on Fed Stimulus Bets

By Andrea Jaramillo -
Jun 19, 2012

Colombia’s peso rose the most in two
weeks on speculation the Federal Reserve will take action to
bolster growth in the world’s biggest economy.

The peso climbed 0.9 percent to 1,773.45 per U.S. dollar at
9:59 a.m. in Bogota, poised for the biggest increase on a
closing basis since June 5. The peso has jumped 9.3 percent
against the dollar this year, the best performance among all of
the 170 currencies tracked by Bloomberg.

“After the Greek elections, the market is fairly
optimistic on what can come out of the Fed meeting,” said
Camilo Perez, the head analyst at Banco de Bogota, the nation’s
second-biggest bank.

Greek politicians may agree today to form a government and
to seek relief from austerity measures imposed as a condition
for bailout loans, probable coalition partners said. Twelve of
21 primary dealers who trade with the U.S. central bank expect
some form of added stimulus from the Fed meeting today and
tomorrow, while nine expect no action.

Fitch Ratings kept Colombia’s credit rating at BBB-, the
lowest level of investment grade, with a stable outlook,
according to a statement today.

Colombia has been less successful than other countries in
the region at curbing currency gains, Finance Minister Juan
Carlos Echeverry said last week. More central bank intervention
in currency markets is compatible with low and stable inflation,
he said.

Dollar Inflows

Central bank chief Jose Dario Uribe said in an interview
last week that Colombia wants a weaker exchange rate and that
policy makers won’t rule out bigger dollar interventions. The
bank’s next monetary policy meeting is scheduled for June 29.

Increased dollar inflows as companies bought pesos to pay
for local taxes between June 8 and June 25 have helped fuel the
local currency’s rally, according to Perez. After tax payments
end this month, the peso will likely weaken in line with other
currencies in Latin America, he said.

“It will become more vulnerable to movements in external
markets,” Perez said. “In that sense, more currency measures
won’t be necessary.”

Banco de la Republica has said it will buy a minimum of $20
million daily in the spot market until at least Nov. 2, while
the government is keeping abroad dividends from state-run oil
company Ecopetrol SA (ECOPETL) to avoid strengthening the peso.

The yield on Colombia’s 10 percent peso-denominated debt
due in July 2024 fell three basis points, or 0.03 percentage
point, to 7.03 percent, according to the central bank. The
bond’s price rose 0.303 centavo to 123.689 centavos per peso.